Procurement & Digitalization: Smart CPOs Blaze a Trail

Procurement executives are a smart group of people. They see the transformative force of digitalization all around them, reshaping industries, anointing winners and altering the familiar landscape of business. And, they know procurement needs to be part of the change.

Our recent study, CPO Survey 2018 – What’s the Next Big Thing in Procurement, looked at attitudes toward digitalization among procurement, finance and supply chain organizations. A resounding 83% of respondents thought digital transformation would impact procurement, supply chain and finance more this year. Likewise, 63% of participants believed automation is important, and they have defined a roadmap. Only a small number of five% of respondents confirmed that they have already achieved a high level of automation.

Tools for digitalization in procurement

Among the elements of digitalization that procurement organizations are exploring are big data, advanced analytics tools and robotic process automation (RPA). Many organizations are already beginning to embrace big data and analytics on the path to procurement performance improvement. CPOs have recognized how powerful these tools are, providing a rich environment for making data-driven decisions while also generating fresh insights that can help strengthen the strategic role of procurement throughout the supply chain and with every part of the business. With these capabilities, product availability and cost will gain context and depth while a high-resolution view of the whole business will come fully into focus. In practical terms, this means existing procurement teams will have the information they need to accurately predict demand, lead times, risk, quality, and other factors. And this “knowledge-is-power” breakthrough also positions procurement to achieve optimal results in pricing.

RPA, which has already made substantial inroads in financial processes, allowing rule-based activities to be successfully automated, is coming to procurement, too. Analyst firm Grand View Research sees the global RPA sector growing at better than 31.1% compound annual growth rate (CAGR) through 2024, based on projected revenues. That’s not surprising given that 20% of those we surveyed are planning RPA investments. Furthermore, our survey showed that 19% of CPO respondents have already invested in RPA and another 9% have made moves in artificial intelligence and cognitive computing.

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While there are no cyborgs sitting at desks with RPA, the effect is just as profound – it truly is an automation of human capability. RPA software can be trained, or in some cases can learn semi-independently, to master many of those office tasks that remain labor-intensive, tying up the talents of much of the organization. RPA means dramatic changes are coming. Innumerable processes within procurement are ripe for this RPA change. Best of all, while the pioneers in this area have mostly been larger firms, the technology is becoming less complex and more affordable, allowing even small and mid-size procurement organizations to embrace RPA. Of course, it’s important to note that RPA does not mean the elimination of human jobs – it means freeing up human talent to focus on more strategic and value adding tasks.

Improving – not replacing – procurement jobs

Some CPOs are looking a little further into the future and recognizing that digitalization is not just a single technology or even a group of technologies – it is a rethinking of how procurement works. The technologies are the tools. The skills that make your organization a success still matter – in fact, they matter more than ever. But, by harnessing artificial intelligence and machine learning, big data, RPA and more, savvy CPOs realize they will make their talented people smarter and dramatically more efficient.

For example, a top concern that registered with procurement pros in both Europe and the U.S. was the ability to attract, develop and retain talent needed across the procurement function – both in the present and through any envisioned transformation.

Today’s procurement operations are typically well-oiled machines that integrate human expertise, computers and some degree of automation. But digitization promises a quantum jump in capability and almost guarantees redefinition of many jobs. For example, an employee who is adept at juggling multiple screens showing purchase orders, invoices and delivery records might be entirely replaced by RPA which understands or can learn the thought processes and rules that are at work in that individual’s tasks.

So, for procurement, the digitization process has great promise but also the near certainty that job definitions will change. That’s bound to upset the apple cart – risking the alienation of some workers, turnover or even process disruption. This is a challenge, and it requires leadership and planning. Although there are widely expressed fears in the popular media about digitization – and all kinds of automation – and what it will mean for people, the big picture is positive. Prior waves of change – the application of motor power and machinery to production and the introduction of computers in business – did not produce a net loss of jobs. The jobs changed and, in fact, generally improved.

So, CPOs that are leading the way on digitalization are preparing their organizations to deploy and redeploy talent wisely in the face of this change. To succeed, procurement leaders will need to engage their workforce in the process and, where possible, provide career paths and training that embrace digitalization.

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In fact, human talent is going to be more critical to organizations than ever. Companies must recognize, nurture and reward the people that can provide their competitive differentiation. They must have a talent management strategy to strengthen roles and develop skills and knowledge for cutting-edge performance. To achieve that procurement needs to become better in marketing the benefits the function offers. There is no better place for talent to learn and understand the business model of an organization, get a full overview of a company and its departments to be able to determine a next possible step in their careers.

Of course, a primary element in the digitalization of procurement is getting everyone on board to embrace it – from CPOs to entry level procurement professionals. It’s not just about investing in new technology, it is a culture change and a willingness to embrace new, innovative ways of improving procurement. Smart, forward-looking CPOs know that the time to digitize has arrived, and it will be critical to help procurement become a more strategic part of the business – more than just a cost-savings lever. Those who embrace digital technologies will thrive in the evolving business landscape, while those that don’t will be left in the dust by the competition.